In Tuseday's market session, we observed a 5% increase in the price action of RUN , which, as expected, triggered a minor retracement due to typical market dynamics. However, our focus today is on a highly significant order block zone, spanning from $14.13 to $14.90. After nearly a year of dedicated study into the behaviors of major institutional players in the market, we've uncovered a crucial aspect of their approach.
Understanding Institutional Strategies:
Institutional investors, in their quest to enter positions, follow a dual-pronged strategy. First, they aim to create adequate liquidity in the market to facilitate their trades. Second, they seek to initiate positions at the lowest possible prices, effectively maximizing their profit margins. It's important to note that their entry points often differ from those favored by retail traders, and herein lies the intriguing element of market dynamics.
Manipulating Retail Sentiment:
Institutional investors sometimes choose to exert selling pressure when the market approaches what appears to be a demand zone, a strategy designed to trigger stop losses placed by retail traders. This calculated move creates a cascade effect, further driving prices downward. As retail traders' stop losses are hit, the market sentiment shifts. What once seemed like a strong demand zone now appears fragile, causing retail participants to rethink their positions.
Conclusion and outlook
As we anticipate a continued retracement in the price action towards the demand zone, it becomes essential to employ a meticulous approach to risk management. Our objective is not only to align with institutional entry points but also to safeguard our positions against potential market volatility.
The Importance of Stop Loss Calculation:
In this endeavor, precise calculation of our stop loss assumes paramount significance. By leveraging historical market volatility data and average candle size, as represented by the Average True Range (ATR), we aim to strike an optimal balance between risk and reward.
Maximizing Position Security:
The crux of this methodology lies in maximizing the probability of maintaining open positions while positioning ourselves to capitalize on the forthcoming momentum instigated by institutional players.
Defining the Stop Loss:
For an entry price of $14.015, which closely aligns with the average demand zone valuation, we have determined that setting the stop loss at $13.77 provides an effective risk management strategy. This strategic adjustment substantially reduces the likelihood of liquidation in the face of adverse price movements.
Incorporating these refined risk management techniques into our trading approach empowers us to align with institutional strategies while mitigating potential downside risks. As we move forward, we are well-equipped to not only participate in the anticipated upward momentum initiated by institutional entries but also to secure our positions, ensuring our trading endeavors remain both profitable and resilient.